Forecast Expectations

Variations and changes to forecasted schedules simply will occur as more details emerge. It is taken for granted that sales team revenue forecasts will continuously change, but often the organization seems shocked when new product development teams change their release forecasts as the work effort becomes better defined. All elements with an organization must realize and take into account the variability of forecasts.

Starting with a true story to emphasize the schedule expectations issue:

Many years ago, I was on the Board of Directors and the acting CEO of a high-tech startup. I held a sales operations review meeting with the entire sales team and my senior staff present. One of our bright, highly competent salesmen commented that he made an initial call on a very influential customer. I told him I was pleased and then asked him when we could expect an order from them. He had a shocked look on his face as did others in the room. I repeated my question. He looked at his boss and said nothing. I asked again. In reply, he said we would receive the order next year. I then asked when next year. He replied that it would be in the first quarter. I then asked what month and day. At that point, he yelled it would be on January 15. I then said to the group that he gave a stupid answer to an even more stupid question. I turned to the group and said how could we expect him to commit to a date with so little information. I then turned to our VP of Development and said, “We do, however, expect a definitive answer from you and your team to commit to a date for the next release before we have finalized the requirements.” The group then understood my point: Commitments without a full understanding of the situation are not commitments, they are only guesses.

The above story highlights a very real situation that occurs in virtually every organization. It is not uncommon for sales teams to re-forecast revenue monthly or even bi-monthly as customer situations become clearer. However, development teams are asked to commit to a delivery date and stick to it long before the details of the release are known. If the development team changes the date, there is an outcry from the sales organization that includes statements that they have committed the date to their customer and any change is unacceptable. When asked about their change in revenue commitments that were communicated to our Board as part of our financial plan, they respond by saying it is a different situation in which they have no control.

The point of the above discussion is to highlight the difficulties in forecasting for both organizations. All forecasts contain a certain degree of risks and wishes. As details surface, the risks become easier to quantify, and the wishes begin to account for the reality of the situation. It should be assumed that some variation in actual results to forecasted results will, most likely, occur. Some organizations and individuals respond by providing either overly optimistic or overly pessimistic forecasts as a defense mechanism to criticism by others. Neither technique works in the long run as colleagues begin to add their own filters to the forecast. Some organizations go so far as to have an internal “real” forecast or schedule and an “external” forecast for consumption by others.

None of the above techniques work and are a major disservice to the business. The best approach is to replace the term forecast with the phrase “best guess as of now” to add a dose of reality to the situation. We live in a probabilistic, not a deterministic world. Instead of thinking of sales and product development forecasts and schedules in absolute terms, all groups need to plan for variations in other groups as they plan for variations in their own activities.